Australia introduces classification for crypto assets

Following the global regulatory race, Australia opened the public consultation on its own taxonomy of cryptoassets. The national regulators propose to distinguish four main types of products related to the crypto industry.

On 3 February, the Australian Treasury released a consultation paper on “token mapping”, heralding it as a fundamental step in the government’s multi-stage reform agenda to regulate the market. It seeks to inform “a fact-based, consumer-conscious and innovation-friendly” approach to policy development.

Based on the “functional” and technology-neutral method, the paper proposes several basic definitions for all things crypto.

At the first level, it outlines the key concepts of crypto networks, crypto tokens and smart contracts. According to the Treasury’s vision, a crypto network is a distributed computer system capable of hosting crypto tokens. Its primary function is to store information and process user instructions. The paper cites Bitcoin and Ethereum as the two most famous public crypto networks.

Related: Australia strengthens crypto watchdogs in ‘multi-stage’ plan to fight fraud

A crypto token is defined as a unit of digital information that can be “exclusively used or controlled” by a person who does not manage the host hardware where the token is registered. According to the paper, the concept of “exclusive use and control” is an important distinguishing factor between crypto tokens and other digital records.

A smart contract goes like the data code published to a crypto network’s database. It involves intermediaries or agents performing functions under pledges or other arrangements or procedures that are completed by crypto networks without pledges, intermediaries and agents.

Based on these simple definitions, the paper proposes its taxonomy of four types of crypto-related products:

1. Crypto asset services, which include lending and borrowing, fiat off/on ramping, crypto token trading, fund management, mining/staking-as-a-service, gambling and custody.
2. Brokered crypto-assets, which are closest to a widespread definition of tokens; rights or licenses in relation to event access or subscriptions, intellectual property, rewards programs, consumer goods and services, fiat money, non-financial assets and government bond coupons. This class includes stablecoins.
3. Network tokens – a “new type of currency” that constitutes peer-to-peer payment infrastructure. Think of your original Bitcoin (BTC).
4. Smart contracts exist in a spectrum from “intermediate” to “public”. Middlemen use the former to offer a service; the latter is used by parties to remove the need for an intermediary.

While the paper proposes to start the discussion on this taxonomy and does not provide any legislative initiatives, the authors expect a relatively simple tailoring of existing laws for a large part of the crypto ecosystem. There are pockets of the ecosystem where functions are secured by public self-service software, which may require the creation of an entirely new body of legislation.

Treasury will wait for feedback until March 3. The next major step in a national regulatory discussion will come with the release of a similar paper on the possible licensing and custody framework for crypto in mid-2023.

On February 1, His Majesty’s Chancellor of the Exchequer in the UK also published his consultation document for the crypto regulation. The Norwegian Financial Supervisory Authority emphasized in that the lack of necessity in the separate legislation, given the capacity of the existing Finance Act to cover digital assets.